A bank is a financial establishment that invests money deposited by customers, pays it out when required, makes loans at interest, and exchanges currency. According to Abbreviationfinder, HSBC stands for Hong Kong and Shanghai Bank Corporation.

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In a commercial sense, a bank is a credit institution that offers paid services for the movement of capital. As an entrepreneur, you are probably asking yourself the question: Do I have to open a business account with my bank? Here we explain to you whether you really need a business account. As a credit institution, a bank offers services for payment transactions, credit transactions and capital transactions. In Germany, a credit institution is a commercial company that does banking.

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The bank and its general functions

Banks generally perform six main functions. These main functions include:

  • Services such as cash transactions
  • Granting loans
  • Monetary function (total payments)
  • (Monetary policy incentives interest rates increase or interest rate or lower)
  • Investment function (securities trading)
  • Economic function

The classic business basis of banks is in particular the management of savings deposits and lending.

Economic functions of a bank

At the economic level, banks have three main functions:

Deadline transformation – 1st function of a bank

Investors and borrowers often think in different time periods. While investors tend to want to get their money very short-term, borrowers often want long-term loans. Banks offer their customers very flexible investment conditions, for example with checking accounts or overnight money accounts, which can be emptied completely from one day to the next. On the other hand, they lend money for longer periods, often over several years. Deadline transformation poses a risk if banks suddenly lose their customers’ trust. In this case, there can be a “bank run” in which all investors want to have their money paid out at once. Of course, this poses problems for the bank because it lent the money to its customers over the long term.

Risk transformation – 2nd function of a bank

While savers definitely want to get back the money that they invest in banks, there is a risk that the individual debtor will not be able to meet his obligations with every loan granted. Since the bank grants a large number of loans and is relatively well informed about the probability of default on its borrowers, the overall risk from the loans granted is not very great. For their part, investors can therefore assume that they will almost certainly get their savings back.

Batch size transformation – 3rd function of a bank

Investors are often private individuals who have very small savings. In contrast, companies require loans of considerable value. Banks can solve this problem by taking the money of many investors and lending it to a smaller number of borrowers.

The bank and its customer groups

Bank customer groups include private customers, corporate customers, states and other banks. The individual customer groups are described in more detail below.

Private customers

A private customer is a single person – in contrast to corporate customers or institutions. A bank’s retail banking business is again divided into

  • Standard customer: focus on mass business (payment transactions, loans, credit cards)
  • Wealthy client: focus on investment advice

Corporate banking

Corporate customers are business customers – i.e. companies and institutions. They usually do their business through a company account. The focus here is on lending to companies.

States

States also belong to a bank’s customer group. The range of offers here includes the granting of government bonds.

Banks

In addition to private customers, corporate customers and states, banks also have other banks as customers. This trade between banks among themselves is also called interbank trade.


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